Are Medicaid Issues Raised If the Appraised Value of a House Is Higher Than the Purchase Price?

My mother-in-law is in an assisted living facility. Her funds are diminishing and it is necessary to sell her home to meet her expenses. Her grandchild is interested in purchasing it. If the agreed-upon purchase price  is less than the appraised value (due to needed upgrades -- septic and furnace are outdated) and in approximately two years her funds run out and we have to apply for Medicaid, will this be a problem? Since the sale was to a family member, could Medicaid force us to pay the difference between the selling price and the actual appraised value of the home? 

Yes, that could be a problem. Presumably the appraisal considered the condition of the house. If not, it may make sense to bring these issues to the attention of the appraiser and see if he or she might make an adjustment. If not, the difference between what the grandchild pays and the fair market value may be considered a gift by your mother-in-law and cause a period of ineligibility for benefits. There are, however, ways to deal with this. I strongly recommend that you consult with a local elder law attorney to figure out the best approach where your mother-in-law lives.

For more on Medicaid's asset transfer rules, click here.